May 26, 2011

First Quarter (2011) GDP revised to 1.8%. Click here. This is dismal, guys. We are NOT in a recovery. As John Williams has explained, we are in the second leg of a Depression.

The revisions give us the truth, although rarely covered by MSM.

There is no growth here. In fact, we are teetering toward the black abyss. Groovygirl hopes you are well prepared for further inflation in prices, lower housing prices, and higher unemployment/under-employment.

It is also very possible for a correction in stocks, but the market is so thinly traded that one large hedge fund (with cash from a bank with access to the Fed’s funding window) and two computers could probably keep it afloat for a while longer. Groovygirl is a little concerned that the insider selling/buying ratio has now slowed. Insiders do not seem to be selling as they have for the last 9 months. If they are all out in anticipation of a market correction, it could happen at any time.

Click here for an article about the economic crisis in Belarus. When you read the article you will notice a few things, government’s main actions to fight the debt crisis of the country is the devalue the currency which causes prices to rise and people to hold anything else but that currency. The reaction to rising prices is price controls. The next step after price controls….manufacturers and wholesalers to stop producing because they can’t afford it, which causes supply problems and black market economics.

The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.

“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”

The elderly and those on welfare/unemployment are hit first and hardest. The suggestion in the article is the nationalize assets to pay creditors or secure more debt. This is an extremely short-term solution for the country. If you nationalize assets, how can you make any advancements in the future? The future cash flow from your assets’ investments will all go to your creditors. With your people unemployed, they will not create enough tax income for regular services, including welfare and unemployment and social security benefits. So now you have a devalued currency and no way to improve your country’s investment in the future because you just gave away all your assets for the chance for more debt in the short-term.

A default or partial forgiveness of debt is the only viable way to address these problems. But the world banking system has taken those options off the table.

Hopefully, some country will stand up to creditors and tell them to take a hike.

I don’t know that the US will be quite this bad, but we are taking these same steps, because they are the only steps available now. The world is slower to give back dollars because they are used for trading, but at some point, other trading currencies will be set up and the world’s dollars will come rushing back to the US. This is already starting to happen to the dollar as a store of value as the Fed must pick up the slack of China’s and Japan’s lowered treasury holdings/buying (especially long term holdings). Other countries are in serious talks to trade oil for other currencies other than dollars. They are probably already doing this under the table on a smaller scale.